My Employer Doesn’t Offer a Retirement Plan – Now What?

We talk a lot about how you should always contribute to your retirement account up to the employer match. That’s an easy decision to make. But what do you do if your employer doesn’t offer a retirement account? Or maybe you only work part time and aren’t eligible for your employer’s retirement plan. What should you do then?

IRA or Roth IRA

If you are eligible, I recommend you start with a Roth IRA with a company like Schwab, Fidelity, or Vanguard. The benefit to a Roth IRA is that you are contributing post-tax income, meaning that you will not pay taxes on the money when you withdraw it in the future. The theory is that you will have much more money to withdraw than you put in, so you will ultimately be paying less taxes.

You can contribute a maximum of $5,500 to an IRA (either Roth or traditional), but with a Roth IRA, your eligibility is determined by your income. In 2018, if you are married filing jointly, you can contribute the max if you make up to $189,000. If you make under $199,000, you can contribute a reduced amount. If you are single, you can contribute to the max if you make up to $120,000, and a reduced amount if you make under $135,000.

If you make too much to not be eligible for a Roth IRA, a traditional IRA also has benefits. With a traditional IRA, you can deduct the contribution from your taxable income now, but you will pay taxes on it later (much like a traditional 401k plan). The contribution limit is still $5,500, and you can’t contribute that amount to both a traditional IRA and a Roth IRA. The max to both is a combined $5,500.

One downside I found when I opened my Roth IRA was that the investment firm I chose had a minimum buy-in for most of the funds available in the IRA. So even though I wanted to invest about $450 a month, that wasn’t enough for an initial purchase in a fund. So what I did for the first year of my Roth IRA was to open the account with a single large contribution so I could purchase shares in various funds, after which I could make smaller purchases.

Self-Employed? SEP IRA

If you are self-employed, a SEP IRA is an amazing option. Like a traditional IRA, the money is taxed when you withdraw, but you can contribute up to 25% of your income up to $55,000 in 2018. Also like a traditional IRA, your contributions are tax deductible.

I looked into Solo 401k plans, but I think that the SEP IRA is the better option for the majority of people. It is a lot simpler and has a lot more flexibility, and the majority of people using this option won’t be maxing out the requirements.

Traditional Investments

If you’ve maxed out your Roth/Traditional IRA and aren’t eligible for a SEP IRA, after quite a bit of research, I think your best bet is to look into traditional investing. I’m personally a fan of mutual funds, but if you’re looking to invest a significant amount, you may want to talk to an investment broker or financial planner to determine what works best for you and your future plans.

While there are some immediate tax implications to investment accounts, if you put your money into funds and stocks and don’t do a lot of buying and selling, you can somewhat reduce the immediate tax implications.

There is also a lot of flexibility in a traditional investment account. While the whole point of retirement accounts are to save until retirement, if you suddenly find yourself in emergency need of some of the money, it’s fairly easy to access. Your retirement fund should never be your emergency plan, but sometimes life happens.